Wells Fargo to Pay $1.2 Billion in Mortgage Settlement

Image

A Wells Fargo branch in New York. The San Francisco-based bank is the nation’s largest mortgage lender.CreditEduardo Munoz/Reuters

By Liz Moyer

Feb. 3, 2016

Wells Fargo has agreed to pay $1.2 billion to put to rest claims that it engaged in reckless lending under a Federal Housing Administration program that left a government insurance fund to clean up the mess.

The bank, which is the nation’s largest mortgage lender, has been in talks with the government since 2012 over accusations that it improperly classified some F.H.A. loans as qualifying for federal insurance when they did not, and that it knew of the misclassification but failed to inform housing regulators about the deficiencies before filing insurance claims.

Wells Fargo, based in San Francisco, had been a holdout among large lenders. Citigroup, Bank of America and JPMorgan Chase all previously settled similar claims.

The settlement means Wells Fargo has to reduce 2015 profit by $134 million to account for the extra legal expense.

Wells Fargo said in a securities filing on Wednesday that it had reached an agreement in principle with the Department of Justice and the United States attorney’s offices for the Southern District of New York and the Northern District of California, as well as the Department of Housing and Urban Development. The claims were civil and focused on Wells Fargo’s lending under the F.H.A. program from 2001 to 2010.

When he filed the lawsuit in 2012, Preet Bharara, the United States attorney for the Southern District of New York, said that Wells Fargo had engaged in a “reckless trifecta” of poor training, deficient loan underwriting and poor disclosure in the government-backed loan program.

It was one of several lawsuits brought after the financial crisis that accused banks of shoddy lending practices. F.H.A.-backed loans are typically made to first-time home buyers and those with lower incomes.

Wells Fargo denied the claims at the time, and settlement talks have broken down before. In the filing on Wednesday, Wells Fargo said that although both sides reached the agreement, “there can be no assurance that the company and the federal government will agree on the final documentation of the settlement.”

Regulators have contended that the bank should not have received the insurance proceeds after some of the loans soured. The agreement also includes other potential civil claims relating to F.H.A. lending for other periods, Wells Fargo said.

The settlement will increase the bank’s expenses for last year by $200 million, forcing it to restate 2015 net income by $134 million, or 3 cents a share, to $22.9 billion.

A version of this article appears in print on , on Page B6 of the New York edition with the headline: Wells Fargo Will Pay to Settle U.S. Claims. Order Reprints | Today’s Paper | Subscribe

The All-New DealBook

Our columnist Andrew Ross Sorkin and his Times colleagues help you make sense of major business and policy headlines — and the power-brokers who shape them.

Please verify you’re not a robot by clicking the box.

Invalid email address. Please re-enter.

You must select a newsletter to subscribe to.

* Required field

You agree to receive occasional updates and special offers for The New York Times products and services.